On Nov. 5, U.S. voters will almost certainly face the same choice for president as they did in 2020: Joe Biden or Donald Trump. Never mind the worries about their age and health, or suitability for office, or both men’s enduring unpopularity. Chances are, we’re doing it again. And just like four years ago, the electoral outcome will probably remain a close call until the final ballots are counted. 

Yet there are some important differences this time around, for better and worse. The U.S. economy is booming in ways unimaginable back when the nation voted in 2020 in the grip of the Covid pandemic. Also booming is the nation’s debt load, which helped to fuel this growth. The U.S. owes its creditors a record $34 trillion, and the net cost of interest on that debt now stands at $650 billion—gigantic figures that are bound to constrict the choices of the next administration and Congress.

Biden and Trump are vying to lead the country in profoundly different directions. We’ll leave it to others to decide what that means for social policy and the state of the world. For the economy and markets, it means a new spin on familiar questions about America’s indebtedness, and sharply divergent views on taxation, regulation, and the role of the state.

Let’s take a closer look.

Debt and Deficits

Concerns about U.S. debt and deficits are nothing new, but the size of the debt is, having doubled in roughly the past decade. A report by the nonpartisan Congressional Budget Office in early February set the terms of debate: Debt held by the public will hit 99% of gross domestic product by end of the year. The Federal Reserve’s two-year-old campaign to slow inflation by raising interest rates has added an uncomfortable wrinkle in the form of higher interest payments, which the CBO projects will rise to $1.6 trillion in 2034. 

Both presidents bear responsibility for this borrowing binge. Policies initiated under Trump added $8.4 trillion to the federal debt, while Biden is on track to add about $4 trillion, according to estimates by the Committee for a Responsible Federal Budget.

The ratings firm S&P Global stripped the U.S. of its vaunted triple-A credit rating in 2011 over concerns about policymakers’ long-term inability to get ahead of the mounting debt. Fitch did the same last year, citing the “erosion of governance.”

Moody’s, the lone holdout among the large debt-rating firms, recently warned that it, too, might join the downgrade brigade, citing political polarization and the rising debt.

Neither Democrats nor Republicans have made a serious effort to close the spending gap with sufficient revenue, says Rob Fauber, Moody’s CEO. To the contrary, he says, “that gap will continue to grow and put more and more strain on the balance sheet of the United States.” 

The ratings firms’ decisions have had a relatively small impact on investors because it is clear—including to the firms—that the U.S. debt load is manageable from a purely economic standpoint, at least for now. 

The underlying concern is that the ever-upward trajectory of government borrowing might cause the buyers of U.S. debt to demand a higher yield—a risk premium on what is otherwise thought to be the world’s premier risk-free asset.

There are already signs under Biden that markets may be entering a new era. The combination of higher interest rates, persistent inflation, and political chaos has highlighted the problem, says Nathan Sheets, chief global economist at Citigroup. “This reality has captured the attention of markets at times at least over the past six to 12 months,” says Sheets. “We saw meaningful manifestations of this through [last] summer with the run-up in rates.”

The 10-year Treasury yield peaked in October at just under 5%, but has since fallen to 4.3%. 

Investors will see Biden’s and Trump’s fiscal plans through the lens of this debt burden. Both will be constrained by Congress, but there is a sharp divergence in what the two men want, and how it might affect the market’s treatment of U.S. debt. Just look at taxes. 

Taxes

Lowering taxes on individuals and corporations was one of the hallmarks of the Trump administration—and to many Republicans, its crowning achievement, outside of winning confirmation of more conservative justices to the Supreme Court. 

But Congress used a budget gimmick to pass the Tax Cuts and Jobs Act in 2017: It made corporate tax cuts permanent, while setting other major elements of the act to expire starting in 2025. On the long list of expiring provisions are reductions to the highly visible marginal tax rates for individuals, which will reset to higher levels. The exemption for the estate tax will be roughly halved, to $5 million, plus an inflation adjustment. Limits on the amount that individuals can deduct for state and local taxes will reset. 

A second Trump administration is likely to push to make all of those expiring provisions permanent. A full renewal would cost $3.5 trillion, according to the Congressional Budget Office and the Joint Committee on Taxation. Trump has also floated the idea of additional cuts to the corporate tax rate. 

He will need to cut spending to do either, but the details are fuzzy. Congress gets a big say, too. 

Biden, in contrast, would allow some of the cuts to expire. His budget proposal seeks to extend tax reductions for households making under $400,000 a year. He would pay for them through new taxes on the wealthy and the highest earners, an increase in the corporate rate, and a higher tax on stock buybacks, among other things. He has also shown a willingness to compromise on spending: A deal to avoid breaching the debt ceiling last year will reduce deficits by 7%, the CBO says.

Tariffs

Tariffs are another area of difference between Biden and Trump—and not incidentally, a source of revenue, says Stephen Miran, a former senior advisor at the Treasury Department in the Trump administration. 

Given the high debt and worries about Treasury yields, the next president needs to be creative in raising revenue, says Miran. Tariffs, like other taxes, might have negative economic consequences, but “it’s the cost of having a government,” he says. “Those negative consequences can be less if they correct pre-existing distortions.”  

Both U.S. political parties agree that China’s economic predation has had negative consequences for the U.S. economy, and both candidates are China hawks, albeit to differing degrees.

The centerpiece of Trump’s China strategy as president was a sharp increase in tariffs on U.S. imports. In addition to raising tens of billions in revenue, these tariffs were aimed at protecting U.S. jobs. The consequences were mixed, in part because China retaliated with its own tariffs. Massachusetts Institute of Technology economist David Autor and other economists recently looked at the net effects of the trade war on U.S. manufacturing jobs in the heartland and dubbed them “at best a wash” and potentially “mildly negative.” 

The Biden administration has surprised its critics and kept the China tariffs in place. “Reducing U.S. trade policy down to a conversation about tariffs is unfair,” said Katherine Tai, Biden’s top trade negotiator, when asked by a former trade official about the Autor study.

Biden’s vision for dealing with China amounts to managed competition. He has sought to keep U.S. technology out of Chinese hands through the use of sanctions and export controls, and has taken steps to limit some U.S. investment into China. That strategy probably would continue into a second term. 

Trump, meanwhile, has said he would increase tariffs on China to 60%, to finish the job he started. Tariffs of that magnitude almost certainly wouldn’t be a wash, although they might divert so much trade from China that the revenue effects would be relatively small. 

Trump also plans a 10% tariff on U.S. imports from every country in the world. Erika York of the Tax Foundation projects that these levies would be equivalent to a $300 billion tax increase on Americans. 

Yet thinking about these policies in purely economic terms misses some of the point. Robert Lighthizer, the former U.S. trade representative who led the trade war in Trump’s presidency, sees Trump’s policies as part of an effort to strengthen U.S. manufacturing, which has added more jobs under Biden’s labor-friendly policies. “Manufacturing is about more than economics,” Lighthizer wrote in a recent article in Foreign Affairs. 

The factors that economists care about “are not as important as issues of family stability, strong communities, income equity, and worker pride and satisfaction,” he wrote. 

In other words, Trump and his allies see tariffs not just as a tool to manage trade flows, but also as a means to rebalance the economy in favor of domestic industries.

Coupled with potentially tighter immigration policies under Trump that could restrict the labor supply, some economists see a recipe for stagflation, or sluggish growth and persistently higher inflation.

Federal Reserve

While the central bank arguably was late to recognize resurgent inflation in 2021, Fed Chairman Jerome Powell and his team so far have managed to cool price growth with higher interest rates without tipping the economy into a recession. The battle hasn’t been won yet, however, as the Feb. 13 release of the January consumer price index confirmed. Core inflation, excluding food and energy, rose 3.9% over the past 12 months, and remains stuck well above the Fed’s 2% annual target.

Complicating the fight will be the next president’s decision about the Fed chair. Powell’s term as chairman ends in May 2026. Trump nominated Powell for the job in 2017, but later appeared to regret his decision. As president, Trump called Powell and other Fed officials “boneheads” and publicly exhorted the Fed to lower interest rates below zero. 

Biden offered Powell a second term in 2021 when his first was set to expire. 

Biden’s team declined to discuss whether it would consider reappointing Powell. “The president has made clear that we will respect the Fed’s independence,” Michael Kikukawa, a White House spokesman, told Barron’s.

The Trump campaign didn’t respond to requests for comment on this and other topics, although the candidate has made clear that he won’t reappoint the Fed chief. He told Fox Business in February that he thinks Powell is trying to cut interest rates to help the Democrats.

The Fed has projected three rate cuts this year in anticipation of reduced inflation and a softening economy, although the timing of any cuts is uncertain and, in view of recently strong economic data, likely to be delayed.

Powell has said repeatedly that he doesn’t think about politics. “We think about what’s the right thing to do for the economy,” he said at a news conference in December. In response to a question at his most recent news conference, in January, he said he isn’t focused on the matter of a third term.

Although inflation soared under Biden for multiple reasons, the markets might rebel against Powell’s removal in a second Trump term, as the next Fed’s presumably dovish stance on monetary policy would do little to offset the inflationary impact of continued fiscal spending. Should Trump win, says Marko Papic, chief strategist at the Clocktower Group, an alternative-asset manager, “I think the bond market will just start rioting.”

In other words, nervous investors would send bond yields sharply higher.

That’s a scary thought, even though a spike in bond yields—which would push up borrowing costs—could be just the thing that forces a 1990s-style reckoning on the budget. “This could be the best thing that ever happened to America,” Papic says.

Regulation

There are plenty of other differences between Biden and Trump on policies affecting the economy. Investors are underestimating Trump’s energy plans, says Charles Myers, the founder of Signum Global Advisors, a research firm, and a longtime donor to Biden and other Democrats. The U.S. is already breaking oil-and-gas production records under Biden, but Trump would take things much further, Myers predicts. 

“At the end of his four years, the biggest transformation in the country [would be] that the U.S. will be a much larger producer and exporter of oil and natural gas,” he says, adding that Trump will attempt “everything from rolling back environmental protections to accelerating permitting, opening more federal lands to drilling, more subsidies for fracking, all of that.”

Trump probably would reverse or limit many of Biden’s other regulatory efforts as well, including the current administration’s high-profile crackdown on corporate mergers and acquisitions, with the aim of producing a more dynamic business environment. That would play well on Wall Street.

Stock Market

Although stocks sold off in overnight trading in 2016 when Trump was elected president, the market quickly rebounded and did well during his term. Even accounting for a 34% pandemic-related selloff in early 2020, the S&P 500 index returned 83% during Trump’s term in office. 

The stock market probably would rally on another Trump victory, as investors would expect him to deliver tax cuts and other business-friendly Republican policies.

The market also has rallied under Biden: The S&P 500 has returned 35% since the start of his term, and hit successive records this year. A Biden victory probably wouldn’t rock the market much, as a second Biden administration would be expected to continue a set of policies—higher taxes for higher earners and corporations, support for labor, and a generally more heavy-handed state—that are fairly well priced into stocks. 

Biden’s team professes not to be focused on the market. “President Biden and Vice President [Kamala] Harris are fighting for the middle class and Main Street—not special interests and Wall Street,” said Kikukawa, the White House spokesman.

One reason for the surprising strength of the U.S. economy—and the stock market—is that businesses have been able to plan for what’s ahead. That’s one virtue, at least, of deciding between two candidates who have already held the job. Like it or not, we have seen these movies before.